Tax Type
Corporation Income Tax
Description
Government Affairs Office in State
Topic
Taxable Income
Date Issued
10-03-1988
October 3, 1988
Re: Request for Ruling; Corporation Income Tax
P.L. 86-272: 15 U.S.C.A. §381
Dear*****************
This is in response to your letter of August 8, 1988, which was forwarded to the department because you requested a ruling relating to the corporation income tax administered by us.
Facts
The taxpayer is a manufacturer of prescription drugs and medicines located in another state. Although the taxpayer's products are sold to wholesalers, the taxpayer employs salesmen who call on doctors, hospitals and other entities in the business of distributing or prescribing prescription drugs. This activity is commonly referred to as "detailing" or "mission sales." The salesmen do not have authority to accept or fill orders for prescription drugs.
The taxpayer's only activities in Virginia are that it employs salesmen in Virginia solely for the purpose of detailing and it has a "government affairs" office in Northern Virginia in order to monitor the legislative process in Washington, D.C. Although you do not say so, we also assume that some of the taxpayer's product is shipped to wholesalers located in Virginia as a result of the salesmen's missionary work.
Discussion
Under Public Law 86-272, codified at 15 U.S.C.A. §381, Virginia is prohibited from imposing an income tax on the taxpayer "if the only business activities within such State by or on behalf of such person during such taxable year are . . . " the solicitation of orders. Thus, if the taxpayer's only activities in Virginia were the missionary work by its salesmen and the resulting sales of its product to purchasers in Virginia, the taxpayer would be exempt from Virginia income tax even though it clearly has income from Virginia sources.
However, the taxpayer also has a "government affairs" office located in Virginia. We construe such an office to be a business activity which is not covered by the federal definitions related to solicitation of orders. Under regulation VR 630-3-401.G (copy enclosed), any additional activity may subject the taxpayer to Virginia income tax based upon an analysis of the "nature, continuity, frequency, and regularity of the activities in Virginia compared with the nature, continuity, frequency, and regularity of its activities everywhere."
The maintenance of an office in Virginia is not an isolated transaction but a regular and continuing presence in Virginia for business purposes. Therefore the maintenance of a "government affairs" office, or any other type of office, in Virginia subjects the taxpayer to Virginia income tax on all of its income from Virginia sources.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner